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Govt Rolls Out MSME Credit Guarantee Scheme to Boost Manufacturing

News: Govt launched MCGS-MSME to promote MSME development with collateral-free loans. The new plan provides a credit guarantee of Rs 100 crore for manufacturing expansion.

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Manisha Sharma
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In a move to strengthen the micro, small, and medium enterprises (MSMEs) Sector, The Government has come forward with the mutual credit guarantee scheme for MSMEs (MCGS-MSME).

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Key Highlights of MCGS-MSME

The scheme proposes to give credit guarantee coverage to about Rs 100 crore for every MSME to encourage easier access to financial assistance. The Ministry of Finance stated that the National Credit Guarantee Trustee Company Limited (NCGTC) will offer a 60% guarantee cover to Member Lending Institutions (MLI). The program is expected to be a game-changer in the expansion and modernization of MSMEs.

"The scheme will facilitate collateral-free loans by banks and financial institutions to MSMEs who are in need of debt capital for their expansion and growth," the Ministry stated.

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Loan Structure and Eligibility Criteria

In the MSME sector, where Udyam Registration Number is a prerequisite, guaranteed loan amount under the scheme shall not be more than Rs 100 crore, while project costs may be higher. Construction of project sites, buildings, or civil works can take place with a maximum of 25% of the project cost, and at least 75% of the project cost shall go toward the procurement of machinery and equipment. There will be up to eight years for the repayment of loans up to Rs 50 crore, including a moratorium of up to two years on repayment of principal installments. In respect of loans over Rs 50 crore, a longer tenor would be considered.

The scheme also involves an initial contribution of 5% of the loan amount at the time of applying for guarantee cover.

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"The Annual Guarantee Fee on loan under the scheme will be nil during the year of sanction," the Ministry clarified. Subsequently, it will be 1.5% per annum on the outstanding loan for the next three years and 1% per annum thereafter.

Duration and Economic Impact

This scheme shall be operational for four years from the date of issuance of operational guidelines or until cumulative guarantees reach Rs. 7 lakh crore, whichever is earlier.

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By facilitating better access to credit, the scheme is expected to enhance manufacturing and serve in strengthening the 'Make in India' initiative. The scheme is trying to solve a problem that India faces in becoming a global manufacturing hub due to its location: high fixed costs of setting up manufacturing units, considering the competitive factor of raw materials, labor costs, and growing expertise.

"With the availability of credit to expand the installed capacity of manufacturing units, it can be expected that the manufacturing will grow at a faster pace," the Ministry emphasized.

This initiative confirms the government's commitment to supporting MSMEs, ensuring that they have financial support for operation and contribute to India's economic growth.

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